Climbing the Wall of Worry

August 30, 2009 at 8:32 pm Leave a comment

There is an old saying on Wall Street that bull markets climb the wall of worry.  With the markets up 50% from the March lows, there are plenty of worries to go around: uncertainty about strength of the recovery, fears of double-dip recession, and the very fact that the markets went up so much in a short period of time.  On top of that, we are about the enter the statistically worst month of the year, September.  No wonder that there is a lot of talk about upcoming correction.

From the contrarian point of view, that is exactly why it won’t happen, or if it does happen, it will be relatively mild.  This rally certainly has fundamentals supporting it, in the form of improving manufacturing reports, durable goods orders, and even housing.  After severe spending cuts, pent-up demand for various goods is apparent today, especially on the business side.  A good example of this is IT industry, even though this particular pent-up demand is amplified by the upcoming release of Windows 7 operating system from Microsoft.  This week, Dell and Intel both increased revenue outlooks for the rest of the year.

The two admittedly very important missing links in this recovery are still anemic consumer spending and high unemployment.   The question now is whether employers cut too many jobs during the crisis and thus created pent-up demand for work.  There is some evidence of that in recent reports that new and continuing unemployment claims are stating to fall.  If that is the case, expect the markets to continue its climb up the wall of worry.

Entry filed under: Market Conditions.

Has the Market Topped? How Strong Will this Recovery Be?

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Blog Author

Leon Shirman's long-term investment philosophy is summarized in his book, “42 Rules for Sensible Investing”, also available from Amazon.


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